Trading Plan for 10/20
Earnings, earnings, China, earni… Wait, what? As if fallout from IBM and APPL’s excessive optimism wasn’t enough, China slipped in a “surprise” interest rate hike. Could the sell-off have been bullish for clearing out sellers? It better be, because it’s a long way down – and soon – if not.[pay]
Pattern points… (Setups and technicals)
With Monday’s new high, Thursday’s 1162.50 low became the last relative low. As such, it became the new trend change signal. Closing under it would signal the trend has reversed down. Tuesday’s 1155.50 low probed it, but the cash session’s close equated to 1162.50.
A setup that forms all of its elements except for the close can be a contrary signal. In other words, holding 1162.50‘s test Tuesday afternoon could be bullish. Holding its test Tuesday morning would have been overtly bullish. At the very least, an immediate break under 1157.50 is needed to resume the decline without delay.
Three points of interest about Tuesday afternoon’s price action. First (1) is its 1168.25 bias-down signal that wasn’t touched until after 1:20, signaling no-bias. So the subsequent drop was “no-bias trending” that requires a retracement back to the signal (red line) or to the 1:20 print up to 1170.00 (black arrow).
Second (2) is the slide’s persistently oversold 3-minute RSI (highlighted red) . Not until it left oversold territory, however briefly (circled red), could another low hold. The lower low’s 1-minute RSI diverged positively (circled green) while both RSIs made higher lows. The setup normally produces a reversal. Regardless, it is a tough level to break without a refueling bounce first.
Third (3) is the 3:10-3:20 window (highlighted green) that contained both a probe of two prior lows and the probe’s recovery. This setup could have been overtly bullish had its exit also ended back above its entry, instead of equal. A subsequent low did perform appropriately for the signal, by recovering back above it.
What’s Next… (Outlook and opportunities)
The last relative low before 1162.50 was 1151.75. Its test is not required. But it would be in-play if 1157.00 were broken through any relevant timing window. Breaking lower at Wednesday’s open would be likelier to hold 1151.75‘s test. Sellers might be reluctant ahead of the afternoon’s Beige Book release.
There is also a bounce to 1168.25-1170.00 somewhere in the future. Neutralizing its attraction early on Wednesday would leave an afternoon sell-off free to extend. Of course, bouncing first would be vulnerable to gaining traction back above 1171.00 – a big step in producing a new upleg targeting 1185.00.[/pay]
Look for at least one update overnight or ahead of the Morning Market Tour… My thoughts on the day’s econ calendar are linked here.